Examples

Half of a thousandth of a second may not matter to some, but it can mean the difference between a profit and a loss to the many traders engaging in so-called high-frequency trading, which often measures time in the microsecond--one millionth of a second.

A third major challenge for the SEC involves the rise of so-called high-frequency trading, in which investment firms use powerful computers to detect razor-thin market inefficiencies and then take advantage of them by trading large volumes of shares in mere milliseconds, the report says.

Already a target of opposition from trading industry lobbyists and unlikely to advance in Congress, the proposed tax was designed to curb short-term trading—namely, high-frequency trading—that some Democrats worry is hurting the U.S. financial market.

So-called high-frequency trading firms drew suspicions following the gyration, but an internal report by German exchange operator Deutsche Börse AG, completed this month but not widely circulated, determined that such participants' rapid buying and selling actually helped absorb some of the market shock.

So-called high-frequency trading—a method of rapidly buying and selling securities—has come under scrutiny in recent years as slower-moving investors have raised concerns around being outpaced, and financial markets have increasingly come to rely on the liquidity offered by such firms.